IGAS ENERGY

Budget 2013: Tax breaks to boost UK shale gas investment

The news gave an immediate boost to share prices in gas companies such as IGas Energy (IGAS), which was up 5.6% after the announcement.

Although the extent of government investment in boosting shale gas in still unknown, the Chancellor announced that, as well as a new field allowance for shale gas, the government will extend the ring fence expenditure supplement for shale gas projects from six to 10 years.

By July 2013, the government will produce technical planning guidance on shale gas to provide clarity around planning for shale gas during the important exploration phase for the industry.

It will also keep under review whether the largest shale gas projects should have the option to apply to the major infrastructure regime, while ensuring local communities also benefit from projects in their area.

By the end of the year, the government said it would have produced guidance for the industry to ensure that the planning system was properly aligned with the licensing and regulatory regimes.

"A vital sector for the economy is energy and creating a low-carbon economy should be done in a way that creates jobs," Osborne explained. "The granting of Hinkley Point was a major step forward for nuclear - we... will support the manufacture of low-carbon cars with new tax incentives."

The Chancellor said he considered fracking was the way forward, saying: "Shale gas is part of the future and we will make it happen."

Analyst view

Leila Reddy, analyst at Panmure Gordon, agreed, saying it was "important" that the UK started to recognise shale gas. But she added there was "a lot of technical work to be done."

The "long establishment of the gas in the US has brought down gas prices," she explained, although she said it was too early to predict how gas companies could be affected by the tax regime.

Jon Poore, public sector director at Turner & Townsend, commented: "By offering tax breaks and incentives to the industry, the government is determined that shale should play a key part in Britain's future energy mix. The prospect of a huge new source of gas and the lure of energy independence are clearly too strong for the government to ignore."

However Caroline Lucas, Green MP for Brighton Pavilion, was not impressed: "Not a single word about renewables in the Budget 2013, instead [Osborne is] locking us into higher prices and higher emissions via breaks to gas shale. Fail."

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